MARQUETTE - The Michigan Supreme Court is expected to decide within the next month or so whether it will hear the Marquette and Breitung townships' case on big box store tax valuations.
Whether the high court hears the case or not, the outcome is expected to have statewide implications, possibly threatening the revenue stream countless units of government depend on for operations.
"For an economy that operates on tax revenue, it's potentially disastrous," said Marquette Township Manager Randy Girard.
Total potential lost tax revenue from 'big box' retailers in Marquette Coutny from 2011-14. (Journal Graphic by Bill Harris)
In April, the Michigan Court of Appeals affirmed previous Michigan Tax Tribunal decisions on cases involving Marquette and Breitung townships.
The tax tribunal had decided in those two cases - and several others involving other big box retailers across the state - that occupied and operating retail stores must be valued as though they are vacant and for sale or so-called "dark stores," which have been converted to some other use.
That idea was based on examples from southeast Michigan provided by appraisers indicating that when big box stores are sold they are converted to another use, demolished or investors will spend considerable money reconfiguring the space.
"It may be well and good in southeastern Michigan. It may be fine and it might be a realistic argument in a depressed area, but not in an area that's experiencing 7 to 10 percent annual growth," Girard said.
Lowe's Home Improvement Warehouse was the first local big box outlet using "dark store" methodology for its valuation that the township thought was a reasonable example to challenge before the Michigan Tax Tribunal.
"That was a brand new store that was literally a year old from occupancy, designed for Lowe's, occupied by Lowe's, performing as a Lowe's home improvement store and profitable in an economy that was not depressed," Girard said. "So we appealed that to the tax tribunal and they rejected the appeal. We felt that that was not only improper, but had a dramatic potential impact on the state as a whole in terms of taxation and revenue to local governments and we appealed that to the court of appeals."
Township attorneys argued the stores should be valued considering existing use, present economic income and the land and structures at the time of tax assessment.
"The tribunal found in favor of the taxpayers in both cases and rejected the townships' assessments of the subject properties," the appellate court opinion stated. "Though raised in a variety of ways, the central issue is whether the tribunal improperly valued the owner-occupied properties as vacant and available, rather than occupied. We conclude that the tribunal properly valued the fee simple interest, and we affirm."
If the ruling stands, local units of government will have to refund thousands of dollars in tax revenue to the big box retailers, which in the court case included the Lowe's Home Improvement Warehouse in Marquette Township and a Home Depot store in Breitung Township.
"The immediate impact on this region is that there would be a refund on taxes that were collected in 2011, 12, and 13, plus an impact on what's going to be collected in 2014," Girard said. "So it will impact what's already been spent by local governments and what's budgeted for this year, it will reduce it to the impact of $1.7 million in Marquette County."
Recipients affected by the revenue stream impacts include local schools and services supported by county millages, including 9-1-1 service, Marq-Tran and senior services.
Girard said the townships plan to argue to the Supreme Court that the tax tribunal erred because it did not follow the established Michigan Tax Commission rules for valuations in making its ruling in favor of Lowe's and Home Depot.
"They'll be hearing new testimony on that, we hope. When you appeal a case to the Supreme Court, it's not a given. They select what cases they take," Girard said. "We're hopeful that they will take this case because they have just recently, in the last six to eight months, have ruled on three other tax-related cases. So, we're of the opinion that they see the statewide impact to taxation that might be relevant here and that they'll accept this case. We don't know that yet."
If the court agrees to hear the case, it could be up to a year before a decision is reached.
"In the interim, we're holding everything in abeyance," Girard said. "We've asked for the ability, and the tax tribunal has agreed, to hold all of these decisions in abeyance pending the Supreme Court action, if it goes forward. If not, it becomes the law of the land, the court of appeals decision."
Girard said the township has spent $250,000 on legal expenses getting its case to the Court of Appeals and is expected to spend $50,000 more for the Supreme Court. Marquette County contributed $12,000 to the townships' effort.
Girard said in the wake of the tax tribunal and appellate court decisions, the types of businesses seeking tax relief have expanded beyond big big outlets to include car dealerships, restaurants and apartment complexes.
In the long run, if the appellate court decision stands, the gap created by the big box tax revenue losses will have to be made up by taxing residents, charging residents fees for service or cutting services, Girard said.
John Pepin can be reached at 906-228-2500, ext. 206.